Topic 4

Question 1

Capacity

Answer 1

Maximum output that can be produced over a specific time period by an operating unit

Question 2

Output

Answer 2

Number of units produced; Number of customers served

Question 3

Why are long term capacity decisions important

Answer 3

They’re important because if you make a wrong decision today it will effect a lot of factors - this is why you need approvals before continuing with decision as such

Question 4

Design (theoretical) capacity

Answer 4

Maximum obtainable output rate under ideal conditions

Question 5

Effective capacity

Answer 5

maximum output rate given breaks (scheduling), product mix, equipment maintenance, delays and other realities

Question 6

Efficiency

Answer 6

The ratio of actual output rate to effective capacity. – (Actual output rate)/Effective capacity)

Question 7

Utilizationq

Answer 7

ratio of uptime and available time – (Uptime/Available-time

Question 8

Strategic capacity planning process

Answer 8

1. Forecast demand (long-term)
2. Calculate capacity requirements to meet the forecast
3. Measure the capacity now and plan to bridge the gap – Generate technically feasible alternatives
   – Evaluate each alternative economically
   – Consider non-economic aspects
   – Choose the best alternative and implement

Question 9

Factors of strategic capacity planning

Answer 9

• Facilities and machines: Floor space; layout
• Product mix: Limited vs. extensive
• Workers: Training; skills; experience
• Planning and Operational: Shifts per day; bottlenecks; inventory; quality control
• Supply Chain: Warehousing; transportation; distribution
• External: Product, pollution and other regulatory standards

Question 10

Bottleneck operations

Answer 10

(Take a systems approach to capacity changes) – An operation in a sequence of operations whose capacity is lower than the other operations in the sequence
– Bottleneck’s capacity is the overall capacity • Try to balance capacity of process steps

Question 11

Use capacity cushion

Answer 11

• capacity shortage cost v.s. Cost of excess capacity

Question 12

Optimal operating level

Answer 12

Optimal rate of output (rate that gives minimum per unit cost)
– Economies of scale
• Fixed costs (facilities, equipment, management) spread out over more units
– Diseconomies of scale

Question 13

Two important factors in planning service capacity

Answer 13

– The degree of volatility in demand
– The inability to store services

Question 14

Focuses on relationship between cost, revenue, and volume

Answer 14

– Classify costs as (a) fixed and (b) variable
– Determine break-even point QBEP, i.e. quantity at which profit =0
– If demand is expected to be larger than QBEP, only then there will be a profit